Inflation and retirement (2013, retiree, restaurant, family)
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The CPI is not meant to be your personal cost of living index ....in fact it can’t be , it is only a price change index that takes the temperature on the 1500 mini economies this country consists of ..
It has no clue which goods and services you use and most important how many times do you buy them ..it does not reflect the quality of what you buy personally... there are higher price increases in higher end products but they may last a whole lot longer ....you may sub different items as well.
We have been retired 4 years this month and we still have not needed an inflation raise . Somethings went up , other things like health insurance fell , gas for us fell big time with our new car .rents were capped for millions here at 1.50% for this year and next year ....
Millions of seniors here are exempt from rent increases over 62 and under a certain income to rent ratio. We switched cable providers and are saving quite a bit too.
So we all are going to see inflation differently.. in fact seniors with discretionary spending tend to be effected a whole lot less by inflation... studies show we spend in a smile shape .....we spend more early on in the go go years of retirement.then discretionary spending falls off a cliff in the slow go years ...then we hit the no go years and medical costs go up ..
Much of what no longer is done or used offsets a lot of what goes up ..most seniors don’t need inflation adjusting every year during the slow go years.
So don’t confuse a price change index with a cost of living index , they are not the same thing ...
Well obviously, the CPI is not my personal cost of living index :-). I personally have hardly been affected by inflation at all in the past decade (I mentioned that one service I use regularly, ie, airplane travel, seems to be cheaper than in the past), but I see that things many other people use regularly have increased in price much more than the CPI reflects. For example, if inflation has been mostly under 2% in the past 10 years, then the basic cost of life should be about 25% higher than in 2009. But restaurant prices and rents in large coastal cities have in fact increased more like 75% since then. Eating out and renting an apartment are fairly common activities, and give rise to common mini-economies, so I would expect them to have more impact on CPI than what is in fact being reported.
And again, Fed has done so much QE - where is all that money if it is not being used for more than 2% annual increase in total spending in the US?
Well obviously, the CPI is not my personal cost of living index :-). I personally have hardly been affected by inflation at all in the past decade (I mentioned that one service I use regularly, ie, airplane travel, seems to be cheaper than in the past), but I see that things many other people use regularly have increased in price much more than the CPI reflects. For example, if inflation has been mostly under 2% in the past 10 years, then the basic cost of life should be about 25% higher than in 2009. But restaurant prices and rents in large coastal cities have in fact increased more like 75% since then. Eating out and renting an apartment are fairly common activities, and give rise to common mini-economies, so I would expect them to have more impact on CPI than what is in fact being reported.
And again, Fed has done so much QE - where is all that money if it is not being used for more than 2% annual increase in total spending in the US?
All that money had to go towards inflating the banking system which was collapsing on itself ... because of the way our banking system works banks create money to loan out of a system of deposits and credits so one deposit creates more money then that deposit ...with the fall off in deposits and loans the money had to go towards replacing what vanished in virtual money and was already there .
It is like if you borrowed 100k and put it in your checking account the bank gets to count the loan as an asset and the deposit as an asset and they can loan 200k less the reserve requirement...wash and repeat ....you can see the enormous amount of virtual dollars created that suddenly vanished from the system when things locked up. Banks create 97% of the money in circulation.
So tons of money simply went in to putting back what already existed
All that money had to go towards inflating the banking system which was collapsing on itself ... because of the way our banking system works banks create money to loan out of a system of deposits and credits so one deposit creates more money then that deposit ...with the fall off in deposits and loans the money had to go towards replacing what vanished in virtual money and was already there .
It is like if you borrowed 100k and put it in your checking account the bank gets to count the loan as an asset and the deposit as an asset and they can loan 200k less the reserve requirement...wash and repeat ....you can see the enormous amount of virtual dollars created that suddenly vanished from the system when things locked up. Banks create 97% of the money in circulation.
So tons of money simply went in to putting back what already existed
I know how banking works, and that one deposit creates many loans which total much more than that deposit, and that this is a self-amplifying cycle which creates money. The problem is that the money thus created is indeed virtual, and can become real only if enough people are making deposits and repaying loans in real money earned by economic activity.
The real bailout money went into "putting back" what already existed only as virtual money, ie, "putting back" something that in reality didn't exist. The bailout money was not money generated by economic activity, but was created for the specific purpose of bailout, equivalent to printing tons of new money and putting it into circulation. So there is far more money in circulation now than there is real economic product, which can only result in cost inflation of economic products. That inflation is hiding somewhere where the CPI, as currently constructed and defined, cannot measure it.
Surprisingly, this old thread died rapidly without much discussion... I thought of reviving it based on a conversation with an acquaintance whose extended family member is a very rich kid.
The conversation was on the subject of what it is in fact that is keeping the inflation so low despite the Fed's massive quantitative easing, which should have had the same effects as printing a lot of money, ie, should have led to a rampant inflation by now. My acquaintance says that the inflation of prices of luxury goods, and generally in the realm in which her superrich nephew-twice-removed lives, HAS in fact been rampant. But she says that practically all inflation has been confined to what the top 10% tend to consume, which is in fact protecting the rest of the society from seeing much effect of inflation, and this is likely to continue.
I want to add that I just bought a plane ticket Boston - San Francisco for $119 with United. The ticket to get back will likely cost about the same, ie, $238 roundtrip. The ticket is bare-bones (only one small item is allowed, which can be stuffed under a seat, no overhead bin luggage or roller bag), but still these are the cheapest tickets available for this particular trip in the past 30 years, and that is despite currently increased fuel prices.
Opinions? Where is the inflation?? Will it be back, will it not, and why? What does it mean for 55+ people who are retired or will be soon?
I got you beaten. I paid $99 one way from LAX to Boston with checkin luggage and such. I don’t use it, but it’s not restrictive. I agree there’s very low inflation. My food budget is going down too. Maybe too much free time for retirees.
You'll note food, fuels and utilities, and motor fuel are accounted for and represented.
Quote:
Originally Posted by elnrgby
For example, if inflation has been mostly under 2% in the past 10 years, then the basic cost of life should be about 25% higher than in 2009. But restaurant prices and rents in large coastal cities have in fact increased more like 75% since then. Eating out and renting an apartment are fairly common activities, and give rise to common mini-economies, so I would expect them to have more impact on CPI than what is in fact being reported.
So this comes down to amateur analysis of prices in large coastal cities?
Here is rent:
The real median across the entire country went from about $900 to about $1,000 over 10 years, an increase yes but far from the 75% you're claiming we should expect.
I've no idea where to find avg restaurant prices but I suspect we'd have similar where reality doesn't quite agree with that 75% you're claiming.
You'll note food, fuels and utilities, and motor fuel are accounted for and represented.
So this comes down to amateur analysis of prices in large coastal cities?
Here is rent:
The real median across the entire country went from about $900 to about $1,000 over 10 years, an increase yes but far from the 75% you're claiming we should expect.
I've no idea where to find avg restaurant prices but I suspect we'd have similar where reality doesn't quite agree with that 75% you're claiming.
You are showing me median rent for the US - I mentioned rent in large coastal cities. You cannot rent anything at all in Boston and San Francisco for $1,000.. Ten years ago, you could get a studio in Boston for $900, or a studio in San Francisco for about $1,200. This summer, the absolute cheapest rents in Boston are around $1,500; in San Francisco a few months ago I did not see anything under $2,000. I pass by realtors' offices near where I live in both cities - there are 3 realtors in a few blocks near my place in Boston, and one right around the corner from me in SF - I see what they advertise all the time.
Likewise, I see what restaurants advertise (and go to restaurants as well). I don't need complex research to remember that crepes with banana and rum in the little cafe near where I live used to cost $9 about 10 years ago (which was overpriced already), but I see that they cost $16 now.
I got you beaten. I paid $99 one way from LAX to Boston with checkin luggage and such. I don’t use it, but it’s not restrictive. I agree there’s very low inflation. My food budget is going down too. Maybe too much free time for retirees.
Good for you :-). Tickets between BOS and LAX do generally tend to be a few $ cheaper than between BOS and SFO.
Bottom Line: We're more likely to experience deflation.
I don't entirely understand this article, ie, I see the explanation for the likely recession, but still do not see how that would protect from inflation (a "stagflation" is possible, and it has historically happened, although thankfully is not typical). Since I don't plan on selling anything in the near future, a recession wouldn't bother me personally, but inflation (against which this article doesn't reassure me) certainly would.
I am also inclined to think that there shouldn't be much inflation in an aging country where a large segment of population has "senior" consumer (ie, relatively non-consumer) habits, such as Japan. But on the other hand, I see prices rising in some sectors (see description of rents and banana rum crepes in San Francisco), and rising out of all proportion of reported inflation figures. Also as mentioned, an acquaintance who has insight into lifestyles of the seriously rich tells me that prices of luxury goods have been increasing briskly (I personally surely wouldn't know about that:-). So, on one hand, there is some decreasing consumption that should prevent inflation, but on the other hand prices of some things have been rising a lot (consistent with availability of extra money from the Fed). So I just simply have no idea what will happen (or maybe is already happening) with inflation in my retirement years. I thought someone could tell me...
I don't try to understand inflation, and I certainly don't try to guess what it will do in the future, but I do try to mitigate its effects on my retirement. Equities are fairly immune to inflation, they just rise in value with it, so that is your first line of defense. Bonds are horrible in an inflationary environment, and the longer the bond, the worse it is. But TIPS are a great way to have the safety of bonds without the exposure to inflation. More than a third of my fixed income allocation is in TIPS. A lot of people complain about TIPS having a mediocre return, but the real return of TIPS is very close to the real return of a nominal bond, plus TIPS automatically adjust the return to the actual rate of inflation.
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